Sophisticated arguments for Activist Trade policy Imperfect Competition and Strategic Trade policy In some industries where there are only a few firms in effective competition The assumptions of perfect competition will not apply Firms will make excess returns(profits) There will be an international competition over the excess returns a subsidy from the government to domestic firms can shift the excess returns from foreign to domestic firms Copyright C 2003 Pearson Education, Inc Slide 11-7Copyright © 2003 Pearson Education, Inc. Slide 11-7 ▪ Imperfect Competition and Strategic Trade Policy • In some industries where there are only a few firms in effective competition: – The assumptions of perfect competition will not apply. – Firms will make excess returns (profits). – There will be an international competition over the excess returns. – A subsidy from the government to domestic firms can shift the excess returns from foreign to domestic firms. Sophisticated Arguments for Activist Trade Policy